Confronting Too Big To Fail... Or Just Being Really, Really Pissed Off

"Bank of England governor Mervyn King, saying new regulations won't prevent failures of big banks, made a strong call for breaking up some of the world's biggest financial firms, a view that takes on increasing significance because he is likely to gain new regulatory powers in the next year. ... Finance ministers across Europe share Mr. King's worries about systemic risk and on Tuesday signed off on an agreement in principle to establish a financial watchdog covering the 27-nation bloc. But the UK held up formal approval because of concerns that three banking subsidiary supervisors covering banking, financial markets and insurance could impose decisions on national governments with fiscal consequences.'The sheer creative imagination of the financial sector to think up new ways of taking risk will in the end, I believes, force us to confront the "too important to fail" question,' Mr. King said in a speech to Scottish businesssmen Tuesday.

Corporate limited liability is the problem. Answer: ban corporations from holding federally insured deposits. Henceforth only unlimited liability general partnerships may hold them. If vampire squid wants to gamble with its money, fine, not with public funds.

Good for you, Pop, I don't care what Zimbabwe Ben thinks either. If his Twitter is any indication of what's going through his head, we really are as screwed as I've been trying to tell you we are and then some.

Senator Bernard Sanders, the Vermont independent, is taking aim at banks that are considered too big to fail. He introduced legislation on Friday that would force the Treasury Department to break up all financial institutions whose failure could cause a major disruption to the nation’s financial system.

“If an institution is too big to fail, it is too big to exist,” Mr. Sanders said in a statement. “We should end the concentration of ownership that has resulted in just four huge financial institutions holding half the mortgages in America, controlling two-thirds of the credit cards and amassing 40 percent of all deposits.”

The four banks cited by Mr. Sanders are Citigroup, Bank of America, Wells Fargo and JPMorgan Chase. Three of those banks have made major acquisitions as a result of the financial crisis. But Citigroup, which received a $45 billion government bailout, is in the process of selling off nonbanking assets.

Shut the fuck up, what happens if we dismantle Citigroup, BofA, Wells Fargo and JP Morgan? First of all, that doesn't solve our chronic vampire squid problem and secondly, all that would do is set the stage for the next round of TBTF banks to line up for a piece of the action. Case in point, US Bancorp. See my November 4th Barney Frank as Bernanke's Pen Pal and Minneapolis Fed's Next Too Big to Fail.

Ok wait a minute, are we breaking up the banks or are we breaking up capitalism? Let's make sure we have our agendas straight here, flaming pitchforks or no flaming pitchforks.

American banks have argued that they need to be large to compete with other big banks overseas. They contend that the larger the bank, the greater its ability to back major projects around the world. But Mr. Sanders is no longer buying that argument.

“I have heard that lie for 16 years,” Mr. Sanders said. “They were wrong. We deregulated them, and they caused the greatest financial crisis in the modern history of America.”

Mr. Sanders, who has described himself as a socialist, sees a need to go after investment banks like Goldman Sachs and Morgan Stanley, as well as commercial banks.

“Goldman Sachs has done irreparable harm to this economy,” Mr. Sanders said. “Let them gamble without any support from the federal government. That they are getting insured” — through implicit government assurances — “is beyond comprehension.”

Aha. I get what's happening here. It's called payback and unfortunately, the wrong people will end up being forced to pay.